Private loans down for 8th month in December

FRANKFURT: Lending to households and companies in the euro area shrank for an eighth month in December as the recession damped demand for credit.

Loans to the private sector fell 0.7% from a year earlier after dropping and annual 0.8%in November, the Frankfurt-based European Central Bank (ECB) said yesterday. Loans fell 0.2%in the month.

The 17-nation euro region is battling its second recession in four years as governments from Greece to Spain rein in spending to cut excessive deficits. There are signs that the economy may start to recover. Economic confidence improved for a second month in December, with stocks rising and bond yields declining, and banks will repay 137.2 billion euros (US$184.4bil) of emergency ECB loans next week, more than economists forecast and two years before they were due to mature.

“Credit supply isn’t much of an issue in general,” said Michael Schubert, an economist at Commerzbank AG in Frankfurt. “The ultimate problem is weak demand. The improvement in financial markets we’ve observed recently hasn’t yet reached the real economy.”

The ECB kept its benchmark interest rate at a record low of 0.75% this month. President Mario Draghi said on Jan 10 he expected the euro economy to recover gradually in the course of 2013. The central bank predicts the economy will shrink 0.3%t this year and grow 1.2% in 2014.

The rate of growth in M3 money supply, which the ECB uses as a gauge of future inflation, decreased to 3.3% in December from 3.8%in November, the ECB said yesterday.

M3 grew 3.7% in the fourth quarter from the same period a year earlier. M3 is the broadest gauge of money supply and includes cash in circulation, some forms of savings and money-market holdings. –